Banks cut rates ahead of RBI policy review

The bigger banks like SBI and ICICI Bank had already reduced their lending rates a couple of days before the RBI rate cutMumbai: Banks have begun to reduce interest rates ahead of Reserve Bank of India’s monetary policy announcement on Wednesday as cost of funds continues to decline. Bank of Baroda on Tuesday reduced its one-year benchmark lending rate by 20 basis points (100 bps = 1 percentage point).

The RBI is widely expected to cut its benchmark interest rate by 25 basis points to 6%. Some economists are even forecasting a 50-basis-point cut, given the slowdown on the back of the cash crunch caused by demonetisation.

“With the revision of MCLR by Bank of Baroda, the offered rate of interest on loan product will be lower by 20 basis points across all the tenors,” the bank said in a statement on Tuesday. For a one-year loan, the lending rates have been reduced to 9.05% from 9.25%.

On Monday, Bank of India had reduced lending rates and SBI will review its lending rates on Thursday. Last week, another state-run lender, Dena Bank, had reduced its MCLR by 10 basis points to 9.30% from 9.40% for one-year tenor.

According to 26 of 33 economists in a Bloomberg survey, the six-member Monetary Policy Committee (MPC) led by RBI governor Urjit Patel is expected to lower the repurchase or repo rate — at which the central bank lends to banks — by 25 basis points to 6%. Three economists see a 50-basis-point cut, while four expect no change. The second meeting of the MPC began on Tuesday. Although both the government and RBI nominees have equal representation, the RBI governor has a casting vote. The decision of the panel will be released on Wednesday.

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